Hunan Goke Microelectronics Co.,Ltd. (SZSE:300672) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 35% over that time.

Although its price has surged higher, Hunan Goke MicroelectronicsLtd may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 4.3x, since almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 6.1x and even P/S higher than 11x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Hunan Goke MicroelectronicsLtd's Recent Performance Look Like?

For example, consider that Hunan Goke MicroelectronicsLtd's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Hunan Goke MicroelectronicsLtd would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 41% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 161% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

It's interesting to note that the rest of the industry is similarly expected to grow by 36% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Hunan Goke MicroelectronicsLtd's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can maintain recent growth rates.

What We Can Learn From Hunan Goke MicroelectronicsLtd's P/S?

Hunan Goke MicroelectronicsLtd's stock price has surged recently, but its but its P/S still remains modest. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

The fact that Hunan Goke MicroelectronicsLtd currently trades at a low P/S relative to the industry is unexpected considering its recent three-year growth is in line with the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's performance. While recent

Before you settle on your opinion, we've discovered 2 warning signs for Hunan Goke MicroelectronicsLtd that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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